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As reported in the morning, the result of the banking sector decreased from 560 billion HUF a year earlier to 305 billion HUF in the first three quarters of this year, which means a drop of 46%.
The figures show that despite this halving, there are not many problems in the banking sector, as revenues have increased, cost reductions cannot be deducted from the figures and liquidity and capital position are very good , in contrast to the previous crisis. What caused the drop in the result can be read in the following figure:
Provisions for primarily future losses, which amounted to HUF 153 billion, HUF 101 billion and HUF 40 billion net in each quarter this year, worsened banks’ profits by a total of HUF 294 billion.
The central bank drew attention to the fact that 85.4 percent of net provisioning was made up of 6 banks, which together account for 66 percent of the credit market.
Provisions have been made in such a way that the current quality of the loan portfolio does not yet justify it (banks try to estimate the future mainly based on macroeconomic indicators and customer surveys), that is, to cover expected future losses: the ratio of non-performing loans in the banking sector at the end of September 2 was 0.5%, of which the delinquency of loans to households was 6.2% and for companies 4.6%. Although companies saw a deterioration compared to the end of 2019, this already happened in the first quarter of this year, and since then the delinquency rate has decreased due to the moratorium on repayments.
It is interesting to see how the profits are distributed among the individual banks. These MNB statistics also classify OTP’s foreign subsidiaries as Hungarian credit institutions, thus we distinguish our activities in Hungary within OTP. It can be said that OTP’s Hungarian operations accounted for 53% of domestic bank profits, and together with the bank’s foreign subsidiaries accounted for 62% of total sector profits (the table below shows figures from UniCredit, Raiffeisen and CIB of the parent bank report, average converted to the euro exchange rate).
| Profit of banks after taxes during the first three quarters of 2020 | |
| Bank | Mrd ft |
| OTP Group | 188.2 |
| of which OTP Hungary | 107.9 |
| K&H | 31.7 |
| UniCredit | 23.7 |
| SMEs | 13.3 |
| First | 12.0 |
| Raiffeisen | 11.6 |
| CIB | 3.2 |
| The seven large banks mentioned above without OTP subsidiaries | 203.3 |
| Banking sector as a whole without OTP subsidiaries | 224.5 |
| The banking sector as a whole | 304.8 |
| Source: MNB, bank reports, portfolio calculation. | |
OTP has also expanded over the last year, so this is worth considering when summarizing the following figures at the sector level:
- the sector’s loan portfolio grew 21% in one year and 8% since the start of the coronavirus (more precisely at the end of March),
- the stock of deposits in the sector has grown by 22% in one year and by 8% since the start of the coronavirus (more precisely at the end of March),
- the total balance of the sector has increased by 19% in one year and 7% since the start of the coronavirus (more precisely at the end of March),
- the sector’s net interest income in the first three quarters of the year was 12% and its net income from commissions and commissions 7% higher than the previous year,
- operating expenses increased by 9%, net provisions multiplied by 10 (see above).
In addition to the OTP acquisitions, the payment moratorium also had a positive effect on portfolios and, in part, on revenues, as 41% of domestic corporate loans and 57% of domestic loans participated in the moratorium. at the end of September.
and banks can still count their interest and fees as income this year, but not exactly according to the compound interest rules.
Exactly to what extent this restriction will worsen its results this year (a previous estimate for MNB was about 50 billion HUF), we have not yet found an exact figure.
According to the MNB’s expectations, the domestic corporate loan portfolio may increase between 6 and 9% this year and the national retail loan portfolio between 8 and 12% (from October to October it was + 15% and + 13% respectively), so the repayment moratorium distorts both upwards). The future profitability of banks can be determined by the deterioration of the loans that come out of the moratorium: according to the MNB, 15-20 percent of corporate loans and 5-10 percent of loans to households are considered vulnerable But this does not mean that banks can expect such a rate of non-performing loans. In terms of capital position and liquidity, the Hungarian banking system is resistant even to severe economic stress, shows the Financial Stability Report recently presented by the Central Bank.
Cover image: Shutterstock
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